Currently, a quick look across the sphere of financial newsmedia and blogs will unveil a fairly grim picture of our economic future. The housing bubble probably features most prominently in this picture, but also present are the looming crash in the US Dollar and the prognosis of an Internet Bubble v2.0 in the making. For those of us not making (or losing) money in market speculation it would do us well to consider our perspectives on value.
One of the clearest examples of a distorted concept of value comes, coincidentally, from the first financial bubble in history, the Dutch 'tulip mania' of the early 17th century. Upon their arrival in Amsterdam from the Middle East, the delicate and vividly coloured blooms quickly caught the fancy of Holland's wealthy. Tulip prices rose quickly, especially those of the rare 'broken' varieties (multi-hued due to a virus). Prices for these 'broken' varieties rose astronomically, even to the point of a single bulb being exchanged for a brewery (this variety became known as Tulipe Brasserie).
In 1611, an exchange for tulips (the first modern stock market) was established and 'option' trading (the right to buy at a future date at a predetermined price) developed into what is known as a futures market. Tulips, in a sense, changed hands numerous times before they left the ground. Thus, price became everything, effectively detached from the reality that a tulip bulb was pretty much intrinsically worthless.
As prices rise, of course, everybody wants in and prices climb higher still. The madness of the situation was illuminated to a few savvy dealers that cashed in at the peak, fuelling rumours, and causing the whole house of cards to collapse quickly leaving some with handsome profits and many in financial ruin.
Greed and the idea of a quick buck can certainly cloud our judgment and inhibit prudence in the face of opportunity. If our investments have little or no intrinsic value then we are, in essence, gambling.
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